The objective of your business is to be profitable, that is, to attract people and obtain the desired profit. To achieve this, it is of great importance to learn to carry out pricing strategies smart.
Setting prices goes far beyond labeling products, in the process different aspects are considered. This article is dedicated to this strategy, we will talk about it and give you some efficient examples.
Why is it important to price your product correctly?
Pricing strategies are used to establish the best values for products or services and achieve high competitiveness.
If you set low prices, you may be able to attract more customers, but you won’t get enough profit. Also, people may think that you offer articles without much quality.
On the other hand, very high prices will help you get excellent sales income. However, those with smaller budgets will not buy from your business.
Follow a pricing strategy help find a between what you invest and what you earn, and offers the following advantages:
- Increased sales and profits;
- Risk reduction;
- Greater adaptability to potential clients;
- Satisfaction of those who consume your products;
- Position yourself as an authority against the competition;
- Ensure the survival of your business.
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Factors Influencing Pricing Strategy
when you plan or physical, you need to take into account a series of aspects, why? This way you will be able to establish balanced and convenient values for clients and business.
The factors that influence prices of products or services are:
1. Product life cycle
From the time they are launched to the market until they are released, your products follow a life cycle. The stages and aspects, such as duration and demand, influence the Pricing strategies.
2. Objectives of your business
The marketing classes applied by businesses are not the same in all occasions. Therefore, you must follow pricing strategy that suits goals that you have established for your brand.
If you adapt the strategies to your objectives, you are helping to make them a reality. Some goals that influence when placing prices of products and/or services are:
- Sales increase.
- Increase profit margin per article.
- Increase value of products.
- Facing the competition through more attractive offers.
3. Competition
The number of competitors you have greatly influences the marketing pricing strategies. When it is high, the variation in the value of products can generate different reactions on those who acquire them.
When making purchases, especially virtual, people compare prices in various businesses. To make sure set appropriate pricesnecessary.
4. Value perceived by the person
Although your products have higher prices than your competition, the public may decide to buy from you thanks to your value proposition, which includes:
- Positive customer reviews.
- Guarantee.
- Your level of authority in the market.
- Brand reputation.
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5. Economic conditions
The economic conditions of the country where your business is located greatly influences the pricing strategy. Inflation, interest rate and recession are aspects to consider when setting prices.
9 main pricing strategies
When you define your pricing strategies, you find a variety of options. Which to choose? Well, it depends on the aspects explained above.
The strategies that can help you to choose appropriate prices for your products or services are:
1. Market and demand based pricing strategy
Also known as “Market pricing strategy”, focuses only on the market. You do not need to apply a value proposition or think about the preferences of your customers.
It is one of the pricing strategies most used in retail, as it is an area in which they are guided by commercial margins. Normally, it is applied to products at risk of being easily replaced.
It is not recommended to apply this strategy in businesses that:
- They offer digital services.
- They have no products that can be substituted.
2. Cost-based pricing strategy
In this form of pricing they are considered production, distribution and sale costs. In this way, a base price is established that contains a reasonable profit rate.
The advantage of the strategy is that the price will always be greater than the costs. However, it does not take into account the competitions or prices of its products.
3. Competition-based pricing strategy
With this strategy the competences are analyzed: What prices have your products? Do you offer deals to people? The idea is to establish a competitive price that helps you to have visibility in the market.
It is not an obligation that your prices are lower compared to the competition. If they are higher, add a value proposition to your products, like this you will see the advantages of acquiring them.
In the competition-based pricing strategy the following situations may occur:
- Primed prices: higher than in the competitions, but the products transmit sensations Premium. The idea is to justify your prices or else people will go to other businesses.
- discounted prices: you sell cheaper and, therefore, capture the attention of more people. The disadvantage of this situation is that the competition soon lowers its prices, just like you.
- average prices: you choose prices similar to those of competing brands, but you differentiate yourself with strategies that you establish in your marketing plan.
4. Pricing strategy based on perceived customer value
Many people often compare prices with the benefits they can get when they buy products. The perceived value-based pricing strategy focuses on pricing.
Basically, when you understand how much a person is willing to pay for your product, you are applying pricing. This way of pricing is efficient because it is completely customer-oriented.
Admittedly, pricing based on perceived value can be tricky, as not all people give the same value to products. However, if used correctly, it creates a feeling of loyalty.
When you price based on perceived value, you must evaluate the customer perceptions and needs.
5. Pricing strategies for new products
If you are thinking of launching new or unknown products, this strategy is an excellent option. Consists in price lower than the competition.
If your new product has a low price, it will serve as a decoy, that is, will attract customers until generating a consistent demand. The goal is to build loyalty in people so that they stay with you when you start raising prices.
Remember that the price increase must be progressiveso they will continue to see the advantages of deciding for you.
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6. Pricing strategies for product portfolio
The product line pricing strategy it is not the same as those described above, since it focuses on items that are part of groups, so a price must be set that increases the advantages of the portfolio.
in this strategy the following apply:
- Pricing strategies for a product line: The characteristics of the articles must make it clear why there are different prices.
- Pricing strategies for add-on and optional products: are prices of elements that complement the main product, for example, air conditioning in automobiles.
- Pricing strategies for captive products: They focus on objects that are vital to the proper functioning of the main product. In this strategy, for example, they apply indispensable ink cartridges in printer models.
- Pricing Strategies for Product Bundles: prices of packages less than the sum of the individual value of each item that compose them.
7. Pricing strategies by geographical areas
Did you know that the cost of transportation influences the pricing? The longer the distance between your business and the original location of the productthe higher the cost.
The price strategy by geographic area seeks to consider the distance described above to set the proper value.
8. Prestige pricing strategy
With it, higher prices are set than in your competitions, thus conveying the idea of higher quality. Not all brands should apply this strategy, before doing so, ask yourself: Why my product may be more expensive?
Prestige pricing can be considered one of the. Having a higher value, your customer will wonder what feature sets the product apart of those of your competences.
If you conclude that your products do not have special aspectsDo not apply this strategy.
You may feel that you can set high prices as long as you have new products. Then you start narrowing them down as the popularity of the item declines. If you do, you will apply the skimming pricing strategy.
9. Discount pricing strategy
It consists of adjusting prices and give discounts for different reasonssome are the following:
- Discount for cash payment.
- Price reduction for purchase volume.
- Season discount.
Reducing prices for a while helps attract more people and convert them into potential customers. We suggest you use this strategy for short periods and not very regularlyIf not, it could cost your brand money.
How to set a pricing strategy in marketing?
As you have learned so far, the pricing strategies they have unmatched value, as they offer many advantages. Next, we explain what to do to apply them:
1. Define objectives of the pricing strategy
If you want to create smart goals, we recommend that you apply the SMART methodology. When setting goals, make sure they answer the following questions:
- What do you hope to achieve with marketing pricing strategies?
- What are the results you expect?
- Have you set achievable goals?
- How important is it to achieve them?
- How soon do you expect to meet your goals?
2. Know the market and the public you want to attract
Conduct market research to find out how many skills you have and what strategies apply. In addition, he studies the characteristics, needs and behaviors of your potential customers.
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3. Define costs of your products
Acquire in-depth knowledge about production costs, marketing and product promotion. That way, you will a clear idea of what the true value is of your product and you will reach the break-even point.
4. Analyze strengths and weaknesses
To determine what is the fixing strategy of…
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